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The Age
29-05-2025
- Business
- The Age
‘Worse than Greece': Japan's bond vortex sends a global warning
(A war whose future, after Wednesday's ruling by the US Court of International Trade, is now uncertain). Loading And Japan's bond market, the third-largest in the world, is connected to the rest of the financial world's plumbing, especially with the US financial system. For decades there has been a massive 'carry trade,' where Japanese institutions and investors, and foreign hedge funds, have borrowed very cheaply in Japan to invest in higher-yielding US assets, including US bonds. The macro picture suggests that bond investors have, relatively recently, started demanding a bigger premium for the risk of holding long-dated bonds, particularly the ultra-long maturities of some of the Japanese bonds on issue. There's a definite correlation between the April 2 announcement and the spike in Japanese and US bond yields, with Trump's aggressive tariffs casting a pall over the global economic outlook and the outlook for America's major trading partners, of which Japan is one. America's assault on global trade, along with some of the Trump administration's other 'America First' policies, has ignited a 'Sell America' trade, which is being seen most obviously in the US bond market and the value of the US dollar, which has fallen 9.2 per cent against a basket of America's or trading partners so far this year, including 4 percentage points since April 2. Some of the capital fleeing Trump's America has headed to Japan, with a surge in foreign purchases of Japanese shares and bonds since April 2. Europe has experienced something similar. More threatening and potentially destabilising for the US is the potential for the Japanese carry trade to unwind. Japan is the biggest holder of US bonds, with investments of more than $US1.1 trillion ($1.7 trillion), along with significant holdings of other financial assets. Even Japanese households, faced for decades with negative short-term bond yields in their home market, have chased the higher returns available in the US. Now, with domestic yields rising and the US dollar tumbling, the risk-reward equation for Japanese investors is rebalancing and, after factoring in the cost of hedging the currency exposures, is starting to shift towards their home market. The US is in an analogous fiscal position to Japan, albeit that its government debt isn't (yet?) at Japan's stratospheric levels. Its debt to GDP ratio is around 100 per cent, with Trump's 'One, Big, Beautiful Bill Act' projected to add $US3.8 trillion or more to debt over the next decade and to raise that rate to about 118 per cent 2034. The BoJ has been reducing its purchases of government debt - it owns about 52 per cent of that debt – as it has begun normalising its monetary policies. It has been reducing its bond purchases by 400 billion yen (about $4.3 billion) each quarter. The US Federal Reserve has, similarly, been allowing its holdings of bonds to shrink by not reinvesting the proceeds as the bonds mature. In both markets, that means the former major buyer of the bonds is gradually withdrawing a key source of demand and liquidity for the bonds, even as their issuance continues to increase and, in the US, where there has been a focus on short-term debt issuance, the volume of maturing debt is surging. Loading In Japan, where life insurers and other institutions have been among the major non-government buyers, changed solvency requirements and heavy losses from existing holders – four major insurers lost more than $90 billion on their bond holdings between them in the first quarter – are also diminishing demand. Less demand, coupled with greater supply, inevitably means higher yields and rising interest costs for already stretched government finances. Japan's prime minister, Shigeru Ishiba, under pressure to cut taxes to blunt the impact of the rise in interest rates, said last week that it was important to recognise the dangers of a society and economy with (high) interest rates. 'Our country's fiscal situation is undoubtedly extremely poor, worse than Greece's,' he said, presumably a reference to the debt-inducted crisis Greece faced in 2009, when there was a serious risk that it would be forced from the European Union. The US, of course, had its last remaining AAA credit rating withdrawn by Moody's earlier this month because of its strained and deteriorating public finances. With an inflation rate above the yields on its bonds, despite their recent spikes, real interest rates in Japan remain negative, which may help with management of government debt but may also deter buyers if they doubt the BoJ's ability to bring inflation under control. Growth isn't going to help much. After Trump announced his tariffs – Japan faces the baseline 10 per cent tariff, a 24 per cent 'reciprocal' tariff and the 25 per cent levy on its auto exports the US – the BoJ downgraded its outlook for economic growth this year from 1.1 per cent to 0.5 per cent and from 1 per cent to 0.7 per cent next year. Japan's circumstances are difficult, and made more so by Trump's trade policies, which will hit Japan at a vulnerable moment.
Sydney Morning Herald
29-05-2025
- Business
- Sydney Morning Herald
‘Worse than Greece': Japan's bond vortex sends a global warning
(A war whose future, after Wednesday's ruling by the US Court of International Trade, is now uncertain). Loading And Japan's bond market, the third-largest in the world, is connected to the rest of the financial world's plumbing, especially with the US financial system. For decades there has been a massive 'carry trade,' where Japanese institutions and investors, and foreign hedge funds, have borrowed very cheaply in Japan to invest in higher-yielding US assets, including US bonds. The macro picture suggests that bond investors have, relatively recently, started demanding a bigger premium for the risk of holding long-dated bonds, particularly the ultra-long maturities of some of the Japanese bonds on issue. There's a definite correlation between the April 2 announcement and the spike in Japanese and US bond yields, with Trump's aggressive tariffs casting a pall over the global economic outlook and the outlook for America's major trading partners, of which Japan is one. America's assault on global trade, along with some of the Trump administration's other 'America First' policies, has ignited a 'Sell America' trade, which is being seen most obviously in the US bond market and the value of the US dollar, which has fallen 9.2 per cent against a basket of America's or trading partners so far this year, including 4 percentage points since April 2. Some of the capital fleeing Trump's America has headed to Japan, with a surge in foreign purchases of Japanese shares and bonds since April 2. Europe has experienced something similar. More threatening and potentially destabilising for the US is the potential for the Japanese carry trade to unwind. Japan is the biggest holder of US bonds, with investments of more than $US1.1 trillion ($1.7 trillion), along with significant holdings of other financial assets. Even Japanese households, faced for decades with negative short-term bond yields in their home market, have chased the higher returns available in the US. Now, with domestic yields rising and the US dollar tumbling, the risk-reward equation for Japanese investors is rebalancing and, after factoring in the cost of hedging the currency exposures, is starting to shift towards their home market. The US is in an analogous fiscal position to Japan, albeit that its government debt isn't (yet?) at Japan's stratospheric levels. Its debt to GDP ratio is around 100 per cent, with Trump's 'One, Big, Beautiful Bill Act' projected to add $US3.8 trillion or more to debt over the next decade and to raise that rate to about 118 per cent 2034. The BoJ has been reducing its purchases of government debt - it owns about 52 per cent of that debt – as it has begun normalising its monetary policies. It has been reducing its bond purchases by 400 billion yen (about $4.3 billion) each quarter. The US Federal Reserve has, similarly, been allowing its holdings of bonds to shrink by not reinvesting the proceeds as the bonds mature. In both markets, that means the former major buyer of the bonds is gradually withdrawing a key source of demand and liquidity for the bonds, even as their issuance continues to increase and, in the US, where there has been a focus on short-term debt issuance, the volume of maturing debt is surging. Loading In Japan, where life insurers and other institutions have been among the major non-government buyers, changed solvency requirements and heavy losses from existing holders – four major insurers lost more than $90 billion on their bond holdings between them in the first quarter – are also diminishing demand. Less demand, coupled with greater supply, inevitably means higher yields and rising interest costs for already stretched government finances. Japan's prime minister, Shigeru Ishiba, under pressure to cut taxes to blunt the impact of the rise in interest rates, said last week that it was important to recognise the dangers of a society and economy with (high) interest rates. 'Our country's fiscal situation is undoubtedly extremely poor, worse than Greece's,' he said, presumably a reference to the debt-inducted crisis Greece faced in 2009, when there was a serious risk that it would be forced from the European Union. The US, of course, had its last remaining AAA credit rating withdrawn by Moody's earlier this month because of its strained and deteriorating public finances. With an inflation rate above the yields on its bonds, despite their recent spikes, real interest rates in Japan remain negative, which may help with management of government debt but may also deter buyers if they doubt the BoJ's ability to bring inflation under control. Growth isn't going to help much. After Trump announced his tariffs – Japan faces the baseline 10 per cent tariff, a 24 per cent 'reciprocal' tariff and the 25 per cent levy on its auto exports the US – the BoJ downgraded its outlook for economic growth this year from 1.1 per cent to 0.5 per cent and from 1 per cent to 0.7 per cent next year. Japan's circumstances are difficult, and made more so by Trump's trade policies, which will hit Japan at a vulnerable moment.
AU Financial Review
23-05-2025
- Business
- AU Financial Review
Boeing reaches deal to avoid US prosecution over 737 Max crashes
Washington | The US Justice Department has reached a deal with Boeing that will allow the airplane giant to avoid criminal prosecution for allegedly misleading US regulators about the 737 Max jetliner before two of the planes crashed and killed 346 people, according to court papers filed on Friday (Saturday AEST). Under the 'agreement in principle', which still needs to be finalised, Boeing would pay or invest more than $US1.1 billion ($1.7 billion), including an additional $US445 million for the crash victims' families, the Justice Department said. AP
The Age
16-05-2025
- Automotive
- The Age
Operation Elon: The Aussie who made $820m selling her Tesla shares
Let's start with a different question: why is this respected Silicon Valley veteran selling? Who would not want to own shares in a company that – as its return to the trillion-dollar valuation club demonstrates – seems to be protected from any sense of economic logic. Sales continued to plunge across its biggest European markets last month, despite a long-awaited update of its most popular car. While leaving Tesla on self-drive mode, Musk found time to support extreme right-wing causes across Europe which triggered a plunge in sales on the Continent, as well as the Trump administration which is waging a global trade war that is also costing Tesla dearly. And when reports emerged that Tesla's directors were searching for a potential replacement for Musk – a very sensible decision for any board in the circumstances – Denholm made a public statement declaring the report to be 'absolutely false' and made it clear that Tesla and its founder Musk were joined at the hip. 'The CEO of Tesla is Elon Musk and the board is highly confident in his ability to continue executing on the exciting growth plan ahead,' she said in a tweet on his social media platform, X. It is no wonder this board was slammed by a US court judge over a $US56 billion pay packet for Musk. It was accused of acting as enabler for the company founder, not as an overseer for investors. But the rules are different at Tesla. Its trillion-dollar valuation only makes sense if you look at it as a meme stock – a company that suddenly goes viral on social media and its shares skyrocket for no clear reason. And Musk is its meme. Denholm seems to get this. Any valuation currently subscribed to Tesla left reality a long time ago, and the only tether with valuations on planet Earth is its mercurial founder. Tesla's valuation was extraordinary enough when it was merely worth more than every other carmaker on the planet combined. That was based on the idea that it had too much of a lead on e-vehicles – the car of the future – for anyone else to catch it. While US and European sales reflect repugnance for Musk's politics, the fall-off in China reflects a far more sobering reality: Tesla is way behind its multitude of Chinese rivals on every significant feature: price, recharging times and autonomous driving features which are now offered free on some Chinese cars. Keep in mind that the future earnings which underpin its current $US1.1 trillion valuation are expected to shrink if his Republican buddies successfully gut electric vehicle subsidies to the tune of billions of dollars. And the price investors pay for each dollar of Tesla's profit far exceeds dominant tech rivals like Nvidia, Apple and Microsoft. Cars clearly don't drive its valuation now, it is the market perception of Musk's ability to morph the company into a dominant force in AI, robotaxis and humanoid robots. That is a much harder argument to make in the current environment. Any valuation currently subscribed to Tesla left reality a long time ago, and the only tether with valuations on planet Earth is its mercurial founder. You don't need to go outside the US borders to see what significant competition Tesla faces on the AI front. And China appears to be streets ahead when it comes to autonomous driving, robotaxis and is already talking about AI-aided robots as its next workforce. It underlines that Denholm's one job at Tesla is to keep Musk interested enough to ensure he gives the company a decent crack at the impossible task before it. The issue is not whether Tesla is a valuable company, it is whether it is worth anything remotely close to the current market valuation. It gives an interesting context to Denholm's massive stock sale which has left her with shares worth around $US27 million. Her Tesla stake is almost certainly worth less than her trophy homes in Sydney and nearby Whale Beach where she reportedly tried, and failed, to get approval for a lift to be installed that would deliver her to the sun-kissed sand. If she isn't willing to hold shares she paid almost nothing for, other investors should take heed.
Sydney Morning Herald
16-05-2025
- Automotive
- Sydney Morning Herald
Operation Elon: The Aussie who made $820m selling her Tesla shares
Let's start with a different question: why is this respected Silicon Valley veteran selling? Who would not want to own shares in a company that – as its return to the trillion-dollar valuation club demonstrates – seems to be protected from any sense of economic logic. Sales continued to plunge across its biggest European markets last month, despite a long-awaited update of its most popular car. While leaving Tesla on self-drive mode, Musk found time to support extreme right-wing causes across Europe which triggered a plunge in sales on the Continent, as well as the Trump administration which is waging a global trade war that is also costing Tesla dearly. And when reports emerged that Tesla's directors were searching for a potential replacement for Musk – a very sensible decision for any board in the circumstances – Denholm made a public statement declaring the report to be 'absolutely false' and made it clear that Tesla and its founder Musk were joined at the hip. 'The CEO of Tesla is Elon Musk and the board is highly confident in his ability to continue executing on the exciting growth plan ahead,' she said in a tweet on his social media platform, X. It is no wonder this board was slammed by a US court judge over a $US56 billion pay packet for Musk. It was accused of acting as enabler for the company founder, not as an overseer for investors. But the rules are different at Tesla. Its trillion-dollar valuation only makes sense if you look at it as a meme stock – a company that suddenly goes viral on social media and its shares skyrocket for no clear reason. And Musk is its meme. Denholm seems to get this. Any valuation currently subscribed to Tesla left reality a long time ago, and the only tether with valuations on planet Earth is its mercurial founder. Tesla's valuation was extraordinary enough when it was merely worth more than every other carmaker on the planet combined. That was based on the idea that it had too much of a lead on e-vehicles – the car of the future – for anyone else to catch it. While US and European sales reflect repugnance for Musk's politics, the fall-off in China reflects a far more sobering reality: Tesla is way behind its multitude of Chinese rivals on every significant feature: price, recharging times and autonomous driving features which are now offered free on some Chinese cars. Keep in mind that the future earnings which underpin its current $US1.1 trillion valuation are expected to shrink if his Republican buddies successfully gut electric vehicle subsidies to the tune of billions of dollars. And the price investors pay for each dollar of Tesla's profit far exceeds dominant tech rivals like Nvidia, Apple and Microsoft. Cars clearly don't drive its valuation now, it is the market perception of Musk's ability to morph the company into a dominant force in AI, robotaxis and humanoid robots. That is a much harder argument to make in the current environment. Any valuation currently subscribed to Tesla left reality a long time ago, and the only tether with valuations on planet Earth is its mercurial founder. You don't need to go outside the US borders to see what significant competition Tesla faces on the AI front. And China appears to be streets ahead when it comes to autonomous driving, robotaxis and is already talking about AI-aided robots as its next workforce. It underlines that Denholm's one job at Tesla is to keep Musk interested enough to ensure he gives the company a decent crack at the impossible task before it. The issue is not whether Tesla is a valuable company, it is whether it is worth anything remotely close to the current market valuation. It gives an interesting context to Denholm's massive stock sale which has left her with shares worth around $US27 million. Her Tesla stake is almost certainly worth less than her trophy homes in Sydney and nearby Whale Beach where she reportedly tried, and failed, to get approval for a lift to be installed that would deliver her to the sun-kissed sand. If she isn't willing to hold shares she paid almost nothing for, other investors should take heed.
